The mortgage crisis showed that some residential mortgage lenders weren’t doing a good job of keeping careful records and communicating with borrowers. Some of this affected all borrowers, but the worst effect was that some people who could have worked out their problems with the right help, lost their homes. Congress has told the Consumer Financial Protection Bureau (CFPB) to adopt new federal regulations to avoid this in the future. On this site, you can read about the new proposals, react to them, and discuss them with others. What you say here will make a difference: CFPB is required to consider public comment before making a final decision, and it will get a detailed summary of what Regulation Room commenters have to say.

Agency Proposal

For All Borrowers: Who’s Servicing Your Loan?

§1. Updating borrowers

During the mortgage crisis, some consumers had trouble finding the right person to contact about problems with their home mortgage. The mortgage industry is complicated. A home buyer borrows money from a lender who “owns” the mortgage, and has the right to collect the payments. But, many lenders don’t keep these mortgage loans. They sell them to a new owner, who may resell them to yet another company. Other times, the original lender keeps the mortgage but sells the right to collect the payments to a company known as a “servicer” who actually deals with the borrower to collect payments, etc. Servicers get a fee for doing this and it can be profitable — $25-$50 per thousand dollars of remaining principal, per year – so servicing rights are often resold to still other companies. So, Company 1 might have made the mortgage loan, Company 2 might buy it and become the new owner; Company 3 might get the right to collect the payments, but then resell those “servicing rights” to Company 4. And sometimes the companies are related to one another. No wonder borrowers sometimes couldn’t figure out who to talk to.

CFPB wants borrowers to get better information about when the servicing rights on their mortgage are sold to a different company. Its proposal would also make servicers responsible for good recordkeeping and communication when a loan is being transferred.

What this means for consumers. Here is the notice CFPB is proposing to require:

Is this form clear to borrowers? Is there too much, or too little, information? CFPB wants to keep the form to one page.

The notice must be sent no later than 15 days before the transfer takes effect.

What this means for servicers. CFPB doesn’t expect these proposals to impose significant new burdens on servicers, who are already required to send a transfer notice. The revised model form no longer includes a collect-call telephone number (now, outdated), and the statement explaining complaint resolution rights (now, handled in other ways. See the Getting Errors Fixed post.) Both the transferor and the transferee are required to notify buyers but they can use a single combined form. Servicers will want to look at what sort of transfers would not trigger the new notice requirements (§ 1024.33(b)(2)).

§2. Getting info to the new servicer

Borrowers can be hurt if the original servicer hasn’t given the new servicer the borrower’s loan documents, complete and accurate information about payment history, etc. Borrowers in trouble may discover that the new servicer doesn’t know about things the borrower has been doing to get back on track. (See Options for Avoiding Foreclosure post.) CFPB is proposing to make servicers more responsible for better communications and account information management when servicing rights are transferred. Also, it’s proposing a new rule for what happens when a borrower mistakenly makes a payment or two to the old servicer.

What this means forconsumers. The new proposals would require servicers to make sure that the borrower’s account information is transferred quickly and correctly to the new servicer. Also, a servicer would have to keep account records for at least a year after the transfer, in case borrowers need information or think there’s been an error. (See the Asking for, and Getting, Information and Getting Errors Fixed posts.)

If the borrower mistakenly makes a payment to the old servicer during the first 60 days after the transfer takes effect, CFPB is proposing that so long as the payment was on time, the new servicer could not charge a late fee. The old servicer must either send the payment to the new servicer or return it to the borrower. CFPB has been told that many servicers routinely send such payments to the new servicer. Should this be the new rule? If borrowers can’t be charged a late fee, would the costs to servicers be worth it, especially since added costs may be passed on to consumers? If CFPB does not require the older servicer to send the payment to the new servicer, should it set standards for when and how the old servicer must return the payment to the borrower?

What this means for servicers. Under the new rules, servicers would be required to have “reasonable information management policies and practices” to ensure “the timely transfer of all information and documents relating to a transferred mortgage loan … in a form and manner that ensures the accuracy of the information and documents transferred.” This includes promptly transferring all documents related to loss mitigation options the borrower might be pursuing. See Options for Avoiding Foreclosure § 2.) For details about the new requirement that servicers maintain a “servicing file” for each borrower, see Reliable Contact with People Who Can Help § 2.

It will also be necessary for Servicer’s to transfer knowledge concerning any loan modification request in their pipeline.
Also, no penalties should be applied if for some reason the homeowner does not make the payment on time to the new Servicer, within 30 days from the notice of transfer to the new Servicer. Homeowner’s should be given an additional grace period to make their payment to the New Servicer.

Use these buttons to endorse, share, or reply to the preceding comment by vraphael@wroinc.org.

Thanks for sharing your insight on changing servicers! CFPB wants to prevent late fees for borrowers who pay their old servicer within 60 days after the transfer. Does that solve the problem, or are you proposing an additional layer of protection?

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I had 2 servicers at the same time , and both posted my payment only with different extra fees, so totals were not exact, and one servicer was not even hired yet, this was for 18 months overlapped, and i still can’t get to the bottom of it.I have never gotten answers to my questions, and they treat the homeowners like dirt. The last servicer on record, reported to IRS, that the entire principal was paid last year, and zeroed my account balance, but the lender still is collecting, I have no idea what is going on.

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magie.passaro
I believe if the suggestion I made was in place you would not have had a bad experience when your loan was transferred. Take a look at it and let me know if you think it would have helped.
peekaboo

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When a servicing transfer is done, insurance information is rarely transferred alongside the mortgage information, despite the fact that it is often the same Insurance Tracker that acts as both Loan Servicers. Because of this, many borrowers are saddled with false placement of Force-Placed Insurance.

Use these buttons to endorse, share, or reply to the preceding comment by versability.

You raise an interesting point, versability. Under CFPB’s proposal servicers would have to transfer all information relating to the borrower’s mortgage. See the text here. CFPB specifically mentions information regarding loss mitigation options, should it also do so for information regarding force-placed insurance?

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Yes, all loan origination documentation, loan servicing history, customer contact history, etc should be transferred. If I were to transfer from 1 school to another or 1 primary care provider to another, all of my records are transferred along with me. With servicing transfers, this is often not done.

Also the new servicer should be given a specific deadline to have all of the missing customer information boarded into their systems. As this is often done en masse and electronically, it should take no more than 5 days, but let’s say 15 days just to be nice.

Also, the burden of filling in this missing information should be on the loan servicer, NOT the borrower. I don’t see any reason why if my bank decides to sell my portfolio, it’s suddenly my problem to resubmit information… more »

…before being hit with fees. I didn’t ask to be part of a portfolio they sold. That’s all banking issues that I, as a consumer, should have no responsibility in. « less

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We received our notice of servicing as outlined here, however, the company doing the servicing did not have all the correct information and did not honor the temporary modification outlined by the previous servicer causing us untold hardship and stress.

Because of their delay in information and application they immediately came after us for charges and late fees that we could not have avoided. It was unfair and predatory.

In addition, our previous lender did not work fairly with us, but now that they have sold our loan they no longer have to work with us to correct the flaws in our loan, they simply wash their hands and the new lender/servicer can truthfully say it was not “their” fault.

Use these buttons to endorse, share, or reply to the preceding comment by renoira.

Hi renoira, and thanks again for sharing your experience. section 2 sets new rules for servicers keeping borrowers information and transferring it accurately. Can you share with us in that section whether you think the new rules are enough?

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All of the new proposals appear to be good and are what small banks have been doing for years. My small bank has over half of their loans in home mortgages and have not forclosed on one in over 10 years. Rules like this one could make it harder on small banks to work with customers and more expensive to make mortgage loans.

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Hi mpick76, and welcome to Regulation Room. Rules like this one are made by trying to minimize costs and maximize benefits. Could you provide more details about the costs of the new rules to your business, and how you might make them better?

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A college professor of mine many, many years ago always said think of the word “KISS” – Keep It Simple Stupid”. In my 30 years of banking and the last 16 as CEO of this small bank, I have never seen a simple regulation. Even the ones that solve a simple problem have complex rules. The more complex, the more expensive and the more non-compliance. I like the suggestions mentioned because we do these things anyway. It is in our best interest. I am not sure of the answer, but I know I will have to comply with all the rules, I just should not have to pay someone to explain the rules to me.

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Welcome to Regulation Room, andrea from md. Banks can transfer the servicing rights for your mortgage to other companies. Is that what happened to you? If so, what do you think of the proposed notice of the servicing transfer?

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The letter should also state which servicer is responsible for making payments from any escrow account for property taxes and property insurance and the effective date. Further, it would be good if it gave the website address for the new servicer for account information and gave the proper address / flow for electronic payments (e.g. recurring mortgage payments from a checking account).

Reason – 1) I had a bad experience once when the servicer did not make a timely property tax payment which “slipped through the cracks”. 2) Customers need to know how to handle and timing of changes to regularly scheduled electronic mortgage payments.

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Since the new servicer is essentially the ‘buyer’ of the right to service the mortgage why does this proposed rule not require full disclosure of all information provided by the prior servicer within a reasonable period of time(like 30 [very generous in the computer age] days). It seems to me that by acquiring those servicing rights the servicer should also have responsibilities regarding completion and accuracy of information transfer from ‘old’ to ‘new’ servicers. With full disclosure to the borrower of the information obtained from the previous servicer within 30 days. This should enhance transparency by making this all available to the borrower(the party most involved and most isolated) in this process.

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Hi papertracker, and thanks for participating. It sounds like you’re suggesting that the new servicer should disclose to the borrower all the information it received from the old servicer. Do you think that the new rules on information requests and error resolution would protect borrowers from mishandled information? The costs of responding to error requests may be much lower than the disclosures you suggest.

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Though it may be a good point, that would only/should apply if they are BUYING IT…what is happening is that service companies do just that…only service and do NOT really have invested interest outside of the fees they would collect.

Again, as long as the borrower pays…everything is smooth. It is NOT until the borrower doesnt pay is when we see inconsistencies with these loans and how the data is handled.

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The old servicer should be required to send any payments recieved during the 60 day period directly to the new servicer without any penalty or late charge. If the old servicer is given the option of sending it back to the borrower, the borrower will most likely now incur a late charge with the new servicer. The “send it back to the borrower” should not be an option and should be stricken. Also the the wording “mistakenly or accidently” sent to the old servicer should be revised as well. The borrower should be able to pay the old servicer during the 60 day period without fear. What if there is a dispute or issue with the new servicer at the time of transfer? I have such issue with a new servicer, who refuses to send any information about the loan. I guess I must blindly… more »

…throw money at a company that will not cooperate? No, the old servicer should still except payments, this may be a window to resolve disputes with the new servicer before the borrower makes payments to them. « less

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hotblazer, you seem to have some experience that might be valuable for CFPB to know about. If you want, you can share more details about what you have gone through with your servicer. You might also want to check out the post on Asking For, and Getting, Information.

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Thank you for giving me a voice during this difficult time. I realize the “effective comments” should be structured in a clinical fashion, but I am not cut from that kind of cloth so please bear with me. Much of my story can be found in the Periodic Statements comments, it’s quite lengthy but a true story none the less. After reading those comments you will see that forcing borrowers to immediately pay the new servicer can have unexpected consequences if the new servicer is not cooperating with the borrower. My old servicer did an excellent job of providing monthly statements as well as online access. The new servicer refuses to provide any loan information at all to me, not even what the payment is suppossed to be. During this 60 day window I have paid the old servicer twice,… more »

…once for July and once for August. As long as I pay before the first of September, I am still o.k. under the current RESPA rules. I will pay my old servicer one last time since the new servicer will not let me use my online bank bill pay. After that I will have to send checks via certified mail to a company that will not give me anything for information in return. The value in my story is that despite all the rules and regulations, you can not force a company to act in good faith, unless there is a law requiring them to. So to mitigate any harm to the borrower, who is at the mercy of the servicer, CFPB should err on the side of the consumer. Think of it a a 60 window of opportunity, one where the borrower has the ability to pay the old servicer until any issues with the new servicer can be worked out. My issue is not solved. Restricting the consumers ability to pay the old servicer has absolutely no benefit to the consumer, it only benefits the new servicer. « less

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The problem with all of this is that the consumer doesn’t understand all of the parties involved in his or her loan and might need that information in the case of a financial crisis of some kind. In addition to the servicer of the loan there is the question of who actually owns the loan and, if the loan has been bundled into some sort of security, perhaps the borrower should know that as well. Lack of clear records in this regard was exposed as a major problem during the 2008 crisis. So it seems to me that whenever any change occurs in any of the above, the mortgagee should receive a clear, concise picture of the situation. For example, at time of loan:
- your loan is being sold to you by xxx (include all relevant contact info)
- your loan will be serviced by yyy. This is the organization… more »

…to which your monthly payments will be made. (include all relevant contact info).
- your loan will be owned by zzz. This is the organization to whom you actually owe the money. (include all relevant contact info).

and so on and so forth.

A similar form should be sent when there’s a change.

Suggestion: each mortgage loan should have a unique universal identifier so things can be tracked properly. I.e., when a loan is packaged and sold in a structured security, the paperwork would have the unique IDs of all loans included in the package. « less

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I run a very small bank and we keep every loan we make. All banks must provide you with a form that tells if they plan on selling your loan. If you don’t want your loan sold and would like to have a relationship with a loan officer, they I would like to suggest using a small bank. It accually works. I have been dealing with the same customers for 30 years and have serviced all of their loan needs for that long. Remember, rate is not everything. You get what you pay for, just know what your getting before you sign.

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Hi mpick76. The CFPB is trying to ensure that borrowers whose loans are sold get the information they need when their loan is transferred. You mentioned in an earlier post that rules like this one could make it more expensive for small banks to make mortgage loans. The CFPB is interested in hearing from people with expertise like yourself about the costs of the new rules to small banks, so that it can adopt a rule that minimizes those costs. Any insights you can share would be helpful.

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All banks are required to give you a simple form when you apply for the loan. It states that the bank will sell your loan, the bank will service your loan and does not intend to sell your loan, or the bank can sell your loan. If you don’t want your loan sold, tell them. If they will not change, go somewhere else. You did have a say when you signed that form.

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Number 1. The regulation should only apply to banks that sell loans and only on the loans that are sold. 2. Almost all new regulations require training for all employees, which is expensive and unnecessary. The regulation should always be simple enough that all bankers and consumers can understand it without having to pay someone to understand it. 3. All regulations now have a requirement that the regulation has to be audited at least on an annual basis and the findings reported to the board, even if the bank does not have anything to audit or report. 99% of all banks want to comply with all laws and regulations. It is either the expense involved or the misunderstanding of the reg. that causes them not to be in compliance. I am required to have three exteral audits done at my bank… more »

…now. There is no reason this regulation cannot be short, simple, and easy to comply with. If you need help with it, call me. I personally think all banks should keep and service all mortgage loans they make, but then people that can’t afford to buy houses whould not get too. « less

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Banks use depositers money to lend. In addition, files that qualify for sale on the secondary markets are sold in order to create liquidity…therefore, now they have the cash to lend again.

Banks charge FEES (like lenders) to create the loan, plus collect a premium on the sale of the loan due to the projected value over the next 30 years of payment.

ALL banks/lenders need to be held to the same REGS regardless of size, and if you have anyone handeling loans, they should conform to the SAFE act which right now, BANKS (S&L’s) are not, because thier LOAN OFFICERS are NOT required to TESTED. It is impossible for anyone to know the LAW unless your obligated to comply.

I can only say one name…Washington Mutual. They were one of the largest contributors to this nightmare, and they were a BANK (S&L).

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yes, here’s a simple tip, do not borrow from mortgage comanies and banks, they’re crooks, they lie and give one thing only to give another worse outcome. they take your money, give poor service and try to throw you out on you butt only to give your house to someone else. ridiculous, they triple you payments and don’t receive the ones you made or hold them in secret. these guys are full of bs. don’t belive one word they say when they service your loan. these are rogue scam artist.

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Hi tcregulation, welcome to Regulation Room. It sounds like you’ve had some terrible experiences with your mortgage. If would be helpful if you could talk about specific examples of problems you had. You can share whether CFPB’s proposals would have helped in your situation – you might be interested in the posts on asking for and getting information and reliable contact with people who can help.

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I believe that RESPA should be modified and mandate that the servicer acquiring servicing become responsible for all outstanding payments as of the day of transfer and all payments received by either the selling or purchasing servicer on or after that date. The selling servicer should be legally prohibited from contacting the borrower on a transferred loan for purposes of collecting a payment after the transfer date. This prohibition would apply to collecting on NSF checks as well. The purchasing servicer should be obligated to reimburse the selling servicing for NSFs and perform the function of collecting NSF payments. If the borrower maintains that a payment was made to the prior servicer it is the responsibility of the purchasing servicer to collect from the selling purchaser. I am in favor… more »

…of requiring the selling servicer to return any payment not processed as of the transfer date or received after the transfer date to the borrower. The transfer letter should spell this out for the borrower. Fines and penalties should be incurred by the selling servicer if the servicer processes a payment on a transferred loan after the transfer date. Borrowers can obviously provide the necessary information as to who cashed their payment check and when. This can easily be enforced by review/audit of payment and cash deposit records. Any unprocessed payments held at the time of transfer or received after must be forwarded to the purchasing servicer for processing.

Purchasing servicers should not be allowed to pass the buck to the prior servicer. They should be required to make good with the borrower and settle with the selling servicer however they can. The business risk of not being able to collect from the selling servicer should be taken into account as part of the purchase and sale contract. The borrower should not be caught up in an argument between seller and buyer.« less

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Hi peekaboo, thank you for your comment. Are you saying that you support CFPB’s proposal in the section on getting info to the new servicer, which would require old servicers to forward payments received up to 60 days after the transfer to new servicers? It sounds like you’re concerned that borrowers could have both the old and new servicers demanding payment for the same month. Do CFPB’s other proposals on transferring information to new servicers solve that concern, or do you propose an additional layer of protection?

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Thanks for your question.
I believe the transferring servicer should not be allowed to contact the borrower subsequent to the transfer date for any reason. If contact is necessary such as to follow up on an NSF the new servicer should be required to make the contact on behalf of the old servicer. Any requests to borrower to send another payment, for example, should come from the new servicer and funds should be sent to the new servicer. This will ensure that the borrower will not get caught up in a dispute between services.

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I disagree with the “send it back to the borrower” idea. This does not make sense and does not benefit the borrower. This will only incur late fees to the benefit of the servicers. The borrower should be able to send payments to the old servicer up to 60 days after the transfer date without fear that the payment will not be applied. The borrower should only be concerned with making the payment on time. The old and new servicer are already in a contractual agreement, so tranferring the payment from the old servicer to the new servicer is a simple electronic transaction. It is applied on the same day the old servicer recieves the payment from the borrower. So this talk about sending payments back to the borrower is detrimental to the borrower, this is against the entire purpose of… more »

…the CFPB protecting the borrower. Do not send payments back to the borrower! The old and new servicer shall implement policies and procedures to ensure the payment is posted correctly by either servicer. « less

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In response to the EXCLUSIONS mentioned in (§ 1024.33(b)(2)) and the process of UPDATING BORROWERS, I recommend it to be updated as so… In any event, where the servicing of a mortgage is transferred, sold, assigned, and/or other from the original mortgagee that will change ANY information pertaining to the payments of a consumer loan, the servicer must provide the “Updating Borrower” letter regardless of how the servicing is contracted. It shall be the responsibility of the mortgagee that DECIDES TO SELL THE SERVICING RIGHTS, to create a documented trail of the transaction that is visible to consumers and provide ANY/ALL methods available to the consumer that ensures all payments are directed to the appropriate department, company, contractor, affiliate and/or other that… more »

…will provide services on the behalf of the original mortgagee. (My point is simple, lenders DECIDE to sell the service, to who or why is irrelevant, what is important is that they must retain some form of record that creates a paper trail that can be followed by any competent individual, especially the mortgagor. If you own a business, wouldnt you want to make sure your client is sending the payments to the right place to make sure YOUR getting paid?) « less

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In response, the CFPB is surely on the right track and I understand that added stress on the company, but as much is added to the consumer. As mentioned in the TIME FRAME allocated to such a transfer, 15 days in my eyes is short and should be at least 30-45 days. Why, simple…most mortgagor’s pay their mortgages “Once every month”, so what is happening is that the burden of making an adjustment in 15 days is left to the mortgagor which is unreasonable. As a mortgagor, I would “ALWAYS INVESTIGATE” any/all changes to who recieves my payments, and 15 days is just not sufficient. So, to RESOLVE the issue, extend the NOTICE TIME to 30+ days, and should the mortgagor continue to make the payment to the OLD servicer, PICK UP THE PHONE (or put them on the same system… more »

…that calls consumers for political purposes or collections until the contact is made) AND MAKE CONTACT WITH YOUR CLIENT, AS YOU HAVE PROFITTED FROM HIS/HER PAYMENTS. In addition, a letter explaining that any future payments MUST be made to the NEW servicing company to avoid additonal penalties being assessed to your account…basically 2 letters and a phone call to those that didnt get it or do NOT understand. « less

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Welcome to Regulation Room, loanswithjorge, and thank you for your thoughtful comments. Having servicers call borrowers who make payments to an old servicer is an interesting idea. Can anyone in the industry tell us whether this is a common practice currently? Are there any costs associated with this that might be passed on to consumers? What do other users think?

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